Past performance is no guarantee for future returns. Retail investors should carefully read again this famous financial market disclaimer.

Retail investors have been a driving force in the post-pandemic rally. Lower spending, some extra government-stimulus cash, and plenty of online access to trading platforms, turned masses into day-traders. So much so, that they are credited with 20% of stock trades, and especially favour fancy products that gives you a fancy exposure to markets, like 3x-leveraged Nasdaq, short-dated options, or 10x-leveraged silver futures. You may not know what this actually means, rest assured that 90% of them don’t either.

Democratization of market finance is fantastic. It has allowed to bring down cost, and made saving for the future a lot easier. When combined with social-media-craze it has also led to gamification of money management. Turning a very boring money matter into a fun act is in itself nothing short than a miracle. However, this casino-like experience of stock trading has no correlation to what your long-term saving plans should be.

While it is exhilarating to pocket quick gains when markets go up, you may want to have a game plan when they stop doing so. And they do eventually. Very common to rooky investors is the “saloon-door experiment”. You jump a bit late onto a trade with already good momentum, it starts to go sour and you decide to go the opposite way, but the stock rebounds again. You’re hit twice in the face by the saloon doors and exit the trading room with a bloody nose.

What tells the women from the girls in this environment is risk management. Having a game plan. Setting limits. Selecting instruments with volatility you can stomach. Playing only with money you can afford to lose. Adjusting positions before and not after you’ve reached the limit of your comfort zone. If this game is too cumbersome for you, then delegate it to a fiduciary. It’s like a licensed shrink for markets, a buffer if you will between your gut intentions and what is in fact reasonable to do. It might be less fun, but it will land you closer to your promised land.

360 Advisory – Markets